福泰製藥 (VRTX) 2005 Q3 法說會逐字稿

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  • Operator

  • Good afternoon. My name is Shayla, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the third quarter 2005 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. [OPERATOR INSTRUCTIONS] Thank you. You may begin your conference.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, and good afternoon. This is Lynne Brum, Vice President, Corporate Communications and Financial Planning of Vertex. On behalf of the senior management team, I thank everyone for joining us today. I'll remind you that information discussed on this conference call may consist of forward-looking statements, and as such, are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission, including our 10-K.

  • I'd also like to note during this call we'll discuss financial results using both GAAP and non-GAAP financial measures. Additional information regarding our use of non-GAAP financial measures is available in our third quarter 2005 financial press release. At this time, Vertex's third quarter financial press release has been issued. Please visit our website at www.VRTX.com to listen to the call and view a PowerPoint presentation via the internet, or download a podcast from [E3 file]. A replay will be conference call will be available via the Internet until end of day November 9th.

  • Our third quarter and recent progress has been marked by numerous clinical and corporate achievements. I will begin by reviewing several key events. With our pipeline, we continue to execute well on the development of the X-950. We began a Phase Ib combination study of the VX-950 pegylated interferon, using our new tablet form. We expect to initiate by the end of the year, a one-month Phase II study of the X-950 co-administered with our pegylated interferon. In November, we'll present additional data on the X-950 while attending the 56th AASLD Annual Meeting.

  • We look forward to AASLD and we plan to conduct a conference call in conjunction with the meeting. We expect to have a broad presence at the conference, with five presentations detailing a range of data, including the X-950's pharmacokinetic profile, as well as analyses of viral sequences isolated from the X-950 patients, during and after the X-950 treatment. Among these presentations, full results of the Phase Ib mono therapy study for the X-950 will be presented at the Presidential Plenary session on Monday November 14th.

  • Turning to the X-702, we have reached our target enrollment ahead of schedule in the Phase II clinical trial of VX-702 in patients with rheumatoid arthritis. We recently closed screening and expect to complete full enrollment of the trial within the next week.

  • On the corporate front earlier this month, we announced that we are prioritizing our pipeline for 2006. We'll focus our investment on the development of the X-950, the X-702, and on compounds targeting the treatment of cystic fibrosis. We believe this decision to focus our portfolio will drive value for Vertex and our shareholders. We also strengthened our financial profile most recently with a private exchange of 2007 debt for equity.

  • Vertex is on-track to achieve our clinical and corporate objectives for the year, and our financial strength supports the continued clinical development of our pipeline. On today's call we'll make our prepared remarks, then open up the call to questions. Ian Smith, Vertex's Senior Vice President and Chief Financial Officer, will provide a summary of the third quarter 2005 financial results. Then Dr. John Alam, Vertex's Senior Vice President of Drug Evaluation and Approval, will provide his perspective on our recent clinical progress. Then Dr. Joshua Boger, Vertex's Chairman, President, and CEO, will review upcoming milestones and how they are positioning us for a strong finish to 2005, as well as a strong start to 2006.

  • I will turn the call over to Ian.

  • - EVP, CFO

  • Thanks, Lynne. I'll move straight to out third quarter financial results. Our third quarter GAAP net loss was $79.6 million, or $0.84 per share. This net loss includes a noncash charge of approximately $36 million, resulting from the conversion of approximately $40 million of debt into equity during the quarter. The 2004 third quarter GAAP net loss was $38.8 million, or $0.49 per share. The 2005 third quarter loss before charges was $41.7 million, or $0.44 per share compared to $36.2 million, or $0.46 per share in the prior year. Our third quarter loss was characterized by continued revenue growth, which was offset by increased development investments in our proprietary drug candidates.

  • Total revenues for third quarter were $36.2 million, compared to $26.8 million in 2004. In the third quarter, we saw a $5.1 million increase in HIV product royalties, and an increase in collaborative R&D revenue, which included the receipts of $2.5 million milestone payment from Kissei Pharmaceuticals, relating to VX-702. HIV royalties year-to-date are $23.1 million, compared to $11 million in 2004.

  • In the Lexiva/Telzir product is performing very well with total worldwide sales of close to $150 million through the third quarter. We expect continued growth in total revenues in the fourth quarter, including milestone payments from existing R&D collaborations, and payments from new arrangements.

  • Our total R&D investment was $63.6 million, compared to $48.8 million in the same quarter last year. The growth relates to increased development investments to prepare for and conduct later stage clinical trials of our products in Hepatitis C, and Rheumatoid Arthritis. The research component of our R&D investment, remains consistent to the prior year, and is significantly funded by collaborative revenue. Our SG&A expense for third quarter was $10.7 million which remains consistent to 2004.

  • Now to our balance sheet. We have approximately $400 million in cash, cash equivalents, and available for sale securities, and the result of a privately negotiated conversion of 2007 debt into equity, we now have $42.1 million of convertible debt due in 2007, and $232.4 million of debt due in 2011. The 2011 debt has a conversion price of $14.94, in a noncore period through February 2007. We have enhanced our financial position to enable us to pursue later stage product development opportunities into 2006.

  • Now looking to our full year financial guidance we are reiterating our full year financial guidance that we provided in July on our second quarter conference call. We expect our full year 2005 loss before charges to be in the range of 140 to $150 million. Specifically, we expect the trends in our operating expenses to continue with a key dependency in achieving our last guidance, relating to the achievements of milestones from existing collaborations, and revenue from new collaborative arrangements.

  • This has been a successful year financially for the Company, as well as for progress in our clinical pipeline. We expect to finish the year in strong financial position that will help support full investments in key development opportunities from Hepatitis C, rheumatoid arthritis, and cystic fibrosis in 2006.

  • I will now turn the call over to John.

  • - SVP, Drug Evaluation & Approval

  • Thank you, Ian. Vertex continued to make progress in the clinic in the third quarter.

  • I will begin my prepared remarks today by reviewing recent advances of VX-950. We're moving fast on executing a development plan for VX-950 and HCV, that is designed to establish the product profile of this potentially transformational compound. We announced today that we have initiative screening in a 14-day, 20-patient Phase Ib study of VX-950, dosed in combination with pegylated interferon. In this study, we will evaluate one dose of VX-950, 750 milligrams given three times a day, with and without pegylated interferon. Eight patients will be randomized to receive VX-950 alone, eight will receive VX-950 and pegylated interferon in combination, and four will receive pegylated interferon alone.

  • The primary objective of this study is to compare the biokinetics of combination versus monotherapy versus pegylated interferon given alone. We expect this study will provide further evidence that VX-950, when coadministered with pegylated interferon, could dramatically shorten the required duration of HCV therapy. We expect topline results from the study early in the first quarter of 2006.

  • For this Phase Ib study, we will use our new tablet formulation, which has a favorable profile in terms of drug load per tablet, and ease of swallowing. Specifically data from a recently completed healthy volunteer study demonstrated similar blood levels for the new tablet, compared to the oral suspension when given in the fasted state. Moreover, when dosed with food an increase in blood levels of two- to three-fold was observed. We're pleased with advantages of the current tablet formulation, and we will continue to optimize formulation, as we move forward with the VX-950 program.

  • We have also completed 28-day toxicology studies in two species, rats and dogs. Together, the bioavailability of the study and the toxicology study, will support our IND filing. We have completed pre-IND consultations with the FDA, and expect to file the IND in the next few weeks. This IND will support Phase II development of VX-950 in the U.S.

  • We plan to begin by year end a one-month Phase II study of VX-950, in combination with pegylated interferon. Three month non-clinical toxicology studies were initiated in the third quarter, as planned and are on going, completion of these studies in the first quarter of 2006, will support the subsequent initiation of Phase II clinical studies of three months duration.

  • Earlier this month at the HCV 2005 conference in Montreal, we presented additional clinical data demonstrating that VX-950 can rapidly achieve substantial reductions in ALT levels during 14 days of treatment. These data from our Phase Ib monotherapy study, suggests that VX-950 may reduce liver injury in genotype-1 HCV infected patients. We are unaware of any previous results with a marketed or investigational agent, in which substantial reductions of ALT were achieved so rapidly.

  • There are more data to come. As Lynne mentioned earlier, five abstracts, three posters, and two oral presentations, have been accepted at this year's AASLD conference. We look forward to discussing the data in more detail at that time. Overall the data from the program continues to support the profile of VX-950 as being potentially a transformational drug candidate for the treatment of HCV.

  • I will now turn to our p38 MAP kinase inhibitor, VX-702. In June, we initiated a three-month Phase II clinical study in rheumatoid arthritis with VX-702. We are pleased to report that we have reached a target enrollment of 300 patients in this study. We have closed patient screening, and we expect complete enrollment within the next week. This study will help define the safety, tolerability, and clinical activity of VX-702, in patients with moderate to severe rheumatoid arthritis.

  • We now expect to complete the study in the first quarter, and report topline data in the second quarter of 2006. Since starting the study in June, we have now treated more than 60 patients with VX-702 for the full three months of treatment in the trial. In addition, our collaborator, Kissei, has completed regulatory filings in preparation for phase I clinical development of VX-702 in Japan. We expect the trial there to begin by year end. We believe VX-702 has breakthrough potential for the treatment of rheumatoid arthritis, and we look forward to keeping you informed about its development book here, and in the Far East.

  • In summary, we are very pleased with the clinical progress we have been able to achieve in 2005. We have generated data for our oral ATV protease inhibitor VX-950, that suggests that VX-950 has the potential to become the cornerstone of future therapy. We have also completed enrollment in a major study of our oral p-38 MAP kinase inhibitor VX-702, that has the potential to establish the clinical activity of this agent in rheumatoid arthritis.

  • Joshua, over to you.

  • - Chairman, CEO

  • Thanks, John. 2005 has been an exciting and important year for Vertex. Over the past nine months, we've generated data that could begin to position VX-950, as one of the leading transformational compounds in biotech.

  • In the coming year, building on the observed rapid and dramatic declines in viral levels, and in markers of liver inflammation seen in our initial clinical study with VX-950, we hope to demonstrate in combination studies with VX-950 as the cornerstone of HCV therapy, the possibility of dramatically shortening the treatment duration compared to the current standard of care. We expect that the data that emerges in 2005 and 2006 could substantially reduce development risk, define VX-950's place in future HCV therapy, and begin to redefine the treatment paradigm for hepatitis C.

  • VX-702 for inflammatory diseases is another compound with transformational potential. We are ahead of schedule in this program, and look forward in the first half of 2006 to data in rheumatoid arthritis, that can help define the clinical activity and tolerability of this exciting once-a-day oral compound. We continue to bring new first-in-class product opportunities forward from research.

  • Stay tuned in early 2006, for details of the first compound to come out of our cystic fibrosis program. We believe that our efforts in this area could lead to the development of important new therapies for people with CF. We look forward to moving this program to the next level.

  • In summary, we're enthusiastic about the rest of the year, and for 2006. We look forward to continuing to report our progress to you in the coming months. Lynne, back to you.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Joshua. We'll now open the call for questions.

  • Operator

  • [OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q&A roster. Thank you. Your first question comes from Mark Augustine.

  • - Analyst

  • Thanks so much. I wanted to ask Josh and others, when we're asked questions about the 950 development program, and the risk and potential pitfalls, it's a question we hear with some frequency, so we might as well turn it to you, and ask you what do you perceive to be the most potentially relevant risks, or the ones that you're most on-guard for in the ongoing clinical development and intended commercialization of VX-950?

  • - Chairman, CEO

  • Thanks, Mark, for that question. I'll start, and maybe ask John to comment as well. First of all, we have a tremendous responsibility that we're taking very seriously with VX-950. We have the opportunity to potentially transform the treatment of a major disease, and to bring a major drug to the marketplace. That is an enormous task. We are very aware here at Vertex of how large a task that is. We're sitting here at the end of 2005, just beginning Phase II, and projecting that we could file an NDA in 2008.

  • The timeline is very short, the task is very big, it's particularly large considering that our assumption is this could be a very large drug, a drug that launches very quickly, and is taken by a lot of patients. So we have a lot of challenges in execution, of what will be an aggressive clinical plan, very doable in bringing a product forward, not just a compound, but a product that has a product profile, a manufacturing scale, and delivery of that product into the marketplace.

  • So there's a lot of things that we have to do. We have to do them correctly, we have to do them on time, and we have to do them at scale. Those are the biggest risks in the program. It's executing on the very large responsibility that we have, and I'll ask John to comment on any more specifics.

  • - SVP, Drug Evaluation & Approval

  • I think we had, as we've talked in several situations, a very good risk mitigation plan in place across a number of different fronts, and I hope what we were able to convey in the call today and in previous calls, that we're making progress on, you know, in terms of toxicology, in terms of PMC, in terms of clinical, and each step forward is a further reduction in the risk.

  • The only other comment I'll make is that risk always has to be balanced with potential benefit as well, and this is a case where the potential benefit as Josh outlined is quite high.

  • - Analyst

  • Thanks much.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Mark.

  • Operator

  • Thank you. Your next question comes from Geoffrey Porges.

  • - Analyst

  • One question on VX-950, and then one on VX-702. First on VX-950, could you comment whether you've seen any difference in activity versus different viral subtypes in the Phase Ib trial data, and whether that gives you any further insight into the rebound in viral titus seen in some of the treated patients in that trial?

  • On 702 could you give us a sense of what the next steps might be at the end of that study, assuming things go well, and particularly what the ACR performance hurdle might be, for taking it into Phase 3 in RA? Thanks.

  • - SVP, Drug Evaluation & Approval

  • In terms of VX-950, in the Phase 1b monotherapy trial all the patients were genotype 1. There were a mix of genotype 1a and 1b. In our initial analysis of that data, there were no obvious differences between the response in genotype 1a versus 1b. I think in some of the more finer distinctions of genotype 1a and the variants, we'll be talking to that when we present the sequencing results at AASLD in a couple of weeks.

  • In terms of VX-702, I think our target and objective is to be in an ACR-20 response rate that would be what would you expect with an agent that targets TNF as a p-38 MAP kinase inhibitor does, and with the injectable therapies, what you'd see in a three-month trial are ACR-20 response rates that will vary, from the low 40s in the case of Remicade to 55 to 60% for Enbrel and Humira, and we would certainly be targeting that level of ACR-20 response rate in the current study. You know, the obvious very big event is for VX-702 will always be, that it's an oral agent with a comfortable PK profile, that comfortably makes at once-daily drug.

  • - Analyst

  • So do you have to get to the same level as the TNF inhibitors for the product to go ahead? Is that a decision that you've made?

  • - SVP, Drug Evaluation & Approval

  • No, I think that in -- I mean, given that we don't have a direct comparator, our goal is to be in the range that I defined, and in rough terms, yes, comparable. Whether in the long run equivalence is something we could only establish in a Phase 3 trial with a direct comparator. Whether we would need to be equivalent in that context or not, is a long discussion.

  • I think a once-daily oral drug can have certain advantages and can position you ahead of an injectable therapy, as long as you're in the range. You don't necessarily need to be equivalent.

  • - Analyst

  • Thanks very much.

  • - VP, Corporate Comm, Financial Planning

  • Thank you. Could we have our next question please.

  • Operator

  • Yes, ma'am. Your next question comes from Andrew McDonald.

  • - Analyst

  • Hi. Thank you. I've actually got a couple of questions. One, your PK data for your tablet, can you comment on the trough concentration observed? I know you had reported for the solid -- excuse me, the suspension at 1055 nanograms per mill. I was wondering if you saw that, or higher for the tablet?

  • Also, second question, a lot of us are guessing what the future treatment is going to look like, and when I look at VX-950 monotherapy as having a 4.5 log reduction as monotherapy, then adding interferon on to that, I would speculate that most patients would be PCR negative after a short period of time, and I wouldn't anticipate a whole lot of resistance emerging. Is that consistent with your thoughts? Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Andrew.

  • - SVP, Drug Evaluation & Approval

  • So in terms of the PK data, what we saw, the study that we conducted with the tablet was a single-dose study, and we looked at a dose level at comparable dose level to the oral suspension, at a 750-milligram dose level, the levels of blood that the blood exposure levels we saw over after a single-dose. So I can't comment specifically to trough, because trough concentrations are really something you build up with multiple dosing, but when given in the fasted state the profiles were very similar, and we would expect when given fasted we would see trough levels that are at least as good, as what we saw with the oral suspension.

  • And then in terms of --

  • - VP, Corporate Comm, Financial Planning

  • Andrew, you asked a question regarding the combination of 950 plus peg.

  • - SVP, Drug Evaluation & Approval

  • Right. In terms of our expectations in the upcoming study, yes, we would expect, given that as monotherapy we're seeing, you know, 4.5-- 4.4 log reduction in viral load, and half the patients getting to the limit of quantization.

  • We clearly would expect to see at least that, and as we said we would expect that interferon which in its own right, can decrease viral loads about 1 log, and we know in-vitro interferon and VX-950 are synergistic. We would expect a greater effect when you add interferon on to that.

  • I think in terms of what percentage of patients we would get to undetectable in a two-week study, it's hard to know, but we would like to see as many as possible get to undetectable. Again, we should really see an added activity when interferon is added on.

  • In terms of, in terms of viral variance, or would we see resistance in the combination or not, we have data in-vitro that when you add pegylated interferon on to VX-950, that does prevent the emergence of resistance in the in-vitro setting, and really in terms of antiviral drug therapy overall, in every setting, the approach to minimizing your risk of resistance development is, in fact, in combination, and with interferon and 950 there's a very good rationale for why you should see added to synergistic activity, and that combination should minimize the risk of resistance development.

  • - Analyst

  • Thank you.

  • - Chairman, CEO

  • Andrew, I just want to add, I think -- and we can't really comment on the detail of the AASLD data until that data is released, but I think the extensive sequencing data that we have, and will report on, is encouraging for the use of 950, particularly in combination with an agent like interferon. So it is a very potent compound that is very drastically suppressing the replication of this virus, and in the end we believe that the data supports optimism about its ability to do that in combination with interferon, and we're going to have to prove in that studies coming up.

  • - Analyst

  • Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thanks, Andrew. Could we have our next question.

  • Operator

  • Yes, ma'am. Your next question comes from Jason Zhang.

  • - Analyst

  • Thanks. Question for John and Josh. The new Phase 1b combination study, can you tell what type of patients, are the patients going to be similar to the monotherapy study, in terms of genotype, whether they are naive, or failure, or the baseline viral load?

  • - SVP, Drug Evaluation & Approval

  • They will be all genotype 1, but in distinction to the first Phase 1b study, all these patients will be treatment naive. Because we are now looking for an effect of interferon, and looking for comparison of interferon, and the combination of adding interferon in 950, we didn't want to have, as we had in the first study, most of the patients being treatment failure patients.

  • And actually to get a good assessment we wanted to have as homogenous a population, and to see the full effect of interferon, you want to be in a treatment naive population.

  • - Analyst

  • Also, in terms of viral load, is there any specific requirement for that?

  • - SVP, Drug Evaluation & Approval

  • No, there isn't a specific requirement. What you would expect if it's a usual patient population is that you would have in the low millions, 1 to 3 million international units of virus per milliliter of blood.

  • - Analyst

  • And also, how do you define success of this trial?

  • - SVP, Drug Evaluation & Approval

  • Well, it will be, the primary objective is in terms of viral kinetics. There are a number of parameters of the viral load decline, that we can look at to evaluate whether there is additivity or synergy.

  • One is the steepness of the first slope. A second one is how deep the first slope goes before it changes to the second slope. And that is a direct measure of what's called the effectiveness factor. We can look at the second slope, and the steepness there, then from a clinical perspective, I think as Mark had said, it's really looking at whether we can get patients to undetectable, and how high a proportion of patients we can get to undetectable within a two-week treatment period.

  • - Analyst

  • Also a follow-up to the monotherapy Phase 1b study. Are you continuing to follow patients after they are off study, or you basically don't really follow them after the study?

  • - SVP, Drug Evaluation & Approval

  • In the first study we followed them for 2 to 4 weeks, in terms of viral load. We are going back also and looking at some of the patients at three months out, and characterizing their virus at three months of follow-up as well. That's data that will be coming much later.

  • - Analyst

  • Any plan to follow whatever patients you can find six months after treatment to have any sense of [SVR]?

  • - SVP, Drug Evaluation & Approval

  • In the first study the patients we know in the two to four week follow-up that the virus had come back, and that was completely expected with only two weeks of treatment. The patients who went below the limit of quantization, did it in the two to three days before they ended dosing. So the fact that they came right back was actually not surprising.

  • What was interesting was that the viral load return was actually quite slow, and that may say something about the overall level of the viral load effect that we had in that first study.

  • In the current study, the Phase 1b interferon combination study, we will follow patients if they achieve undetectable status quickly, rapidly. We will follow them off of treatment, if they don't achieve undetectable status, they would be rolled over on to standard of care, the current standard of care.

  • - Analyst

  • Okay. Thanks.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Jason. Could we have the next question, please.

  • Operator

  • Yes, ma'am. Your next question comes from Hari Sambasivam.

  • - Analyst

  • Perhaps a question for John Alam. Some of the data for the Schering-Plough protease inhibitor are also available at this point in time. Could you contrast the 950 versus their product?

  • I'm just wondering, should we expect a class effect from these protease inhibitors, or is there a rational to believe that these protease inhibitors are distinctive, in terms of viral load reductions that they provide, and I am just wondering the thought process behind either similarities or differences might be?

  • - SVP, Drug Evaluation & Approval

  • So I'll primarily talk about VX-950. As you know what we saw was really very rapid and dramatic viral load decline. A 4.4 log reduction in viral load, half the patients in the optimal dose getting to below the limit of quantization, we reported at the Montreal meeting also, really substantial and very rapid declines in ALR levels, which as a group the average levels of ALT coming down into the normal range in all three dose groups, something that within a two-week period of time has never been seen with any other therapy.

  • And all of those benchmarks of clinical activity and antiviral activity have not been achieved by any other agent. The fact that there might be differences, in terms of the clinical activity that we see is in many ways not all that surprising, because each drug is going to have a particular set of pharmacokinetic parameters, in terms of the amount of drug that's absorbed, how fast it's eliminated, the metabolism, and in this particular context, you know, the concentrations that you achieve in the liver is probably going to be very important. We don't know what that is for the Schering compound versus our compound, or any other compound, but what we do know is the clinical activity that VX-950 clearly distinguishes itself from any other data that's been reported.

  • - Analyst

  • That's great. Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Hari. Do we have our next question?

  • Operator

  • Yes, ma'am. Your next question comes from Joe Pantginis.

  • - Analyst

  • Hi, thanks. John, you mentioned today previous in-vitro data for resistance profiles, with and without interferon. I would like to take that to the clinical level now. Without compromising the data at AASLD for the 950 viral sequencing data, can you give more detail on what experiments have been performed to identify the viral sequences, and then any potential resistance scenarios to-date, and what your future plans are in this area? Thanks.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, Joe.

  • - SVP, Drug Evaluation & Approval

  • Well, you know, again, I can't really speak to the AASLD results as such. What I can really point to is how those results are influencing how we are going forward. One is that we were -- as we've talked about from just the overall viral load data, we've identified trough concentrations that are associated with continuous viral load decline, without the absence of viral rebound. We are going to target trough concentrations in all of our upcoming studies that will target the variants that have been identified that were associated with the viral rebound in order to suppress, and the objective would be to prevent viral rebound, in order to suppress and the objective would be to prevent viral rebound, and keep patients in this continuous decline mode, in terms of their viral load.

  • Then the data does point to that interferon, and this is actually in-vitro data to begin with, that is in an article from our virology group that's in press and published on-line now, that one of the resistant forms, in terms of the in-vitro resistance, one of the forms of the virus we know is sensitive to interferon, and equally sensitive as it is to wild-type virus. That's one of the specific rationales for why combination with interferon, but more broadly, as has been seen in HIV and other contexts, when you're in combination therapy and you put two potent antivirals together, resistance tends not to be an issue, particularly in a short-term, in a non-chronic setting, as we're looking at.

  • One of the distinguishing factors in HCV, versus HIV, is that the goal here is to eliminate the virus. And to do so, to eradicate the virus and to do so in our objective is to do so in a three-month or shorter period of time. I think the data overall in AASLD, support that combination of interferon and 950, are that's a very reasonable target to have.

  • - Analyst

  • Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thanks a lot, Joe.

  • Operator

  • Your next question comes from David Witzke.

  • - Analyst

  • Can you comment on what the results of the healthy volunteer pharmacokinetic study indicate regarding the potential for bid dosing at this point?

  • - SVP, Drug Evaluation & Approval

  • Well, we can -- the single dose data by itself don't actually provide all of the answer yet. We are going to be looking at the PK again in the upcoming Phase Ib study. I think that will help us make some decisions, in terms of the dose and dose levels that we would use in the Phase II studies.

  • By no means are we excluding the possibility of having bid dosing in the Phase II study. Particularly, again, when we're in combination with interferon, the trough target concentrations that we may need to achieve, if there is a synergy between interferon and 950, that may change. So, again, stay tuned. We haven't ruled it out.

  • - Analyst

  • And the bio-availability assumptions you made in pre-manufacturing the tablets, I know it's only single doses, but are they consistent with the human results, and should we feel very confident, that the pre-manufactured tablets are adequate for the future studies?

  • - SVP, Drug Evaluation & Approval

  • The animal data where we did see increased bio availability with the tablet formulation is actually quite consistent with what we've seen. We saw similar blood levels with the tablet and the oral suspension when they were given fasted. When they were given with food which, in fact, inherently when you're doing animal studies, you do, we did see a two- to three-fold increase in blood levels with the tablet formulation.

  • You know, overall, our conclusion is not only that it's a PK study but it's really a, go back to the Phase 1 monotherapy study, where we did see -- we were able to identify certain trough concentrations, that were associated with a greater than 4 log reduction in viral load. And we know that with the PK data from the -- with the tablet formulation that we can achieve those trough concentrations with the tablet formulation, and that's what we're going to do in subsequent studies.

  • - Analyst

  • Finally, if I can, considering the Boehringer Ingelheim protease inhibitor, and the cardiac tox in non-human primates, do you think it is necessary or do you think the FDA will find it necessary to test your compound in a non-human primate?

  • - SVP, Drug Evaluation & Approval

  • I'll just restate what I said in the call, that we have completed our pre-IND consultations with the FDA, and usually in a pre-IND consultation, one of the major questions is really the data that you have, and the data you expect to file in your IND, would they support the Phase II program that you envision. We asked that question, we have had a response. I'm not going to go into the details, but we do expect to file the IND within the next few weeks.

  • - VP, Corporate Comm, Financial Planning

  • Thank you, David.

  • Operator

  • Thank you. Your next question comes from George Fulop.

  • - Analyst

  • Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Hi, George.

  • - Analyst

  • Hello. Quick questions on VX-950 regulatory path, and for a change of pace, Lexiva. In your pre-IND consultations with the FDA, have you had a sense of what the requirements might be to change the duration of treatment, from the current consensus guideline treatment duration from an FDA perspective, some of the hurdle or bar you might have?

  • - SVP, Drug Evaluation & Approval

  • Well, I'll answer you more generally, as I have, that we expect that the main regulatory requirement is going to be, that we need to demonstrate that you've gotten the patient to having a sustained virologic response.

  • Regardless of the treatment duration, at six months after ending treatment, whether it's one month, three months, six months, 12 months, whatever it is, six months after that that they remain PCR-undetectable. That is the main regulatory requirement of what you need to achieve, and they want to know what percentage of patients, again, regardless of duration of treatment, that you achieve that response rate.

  • The duration by no means is something that is fixed in the minds of the regulatory authorities. Dose and duration in this context are intrinsically part of what you do in Phase II to define what is the right dose, and what is the right duration to achieve SVR.

  • I'll just point to, there's changes in the guidance in some context of what the required duration is, but with Genotype 2-3 patients with pegylated interferon and ribavirin they're moving towards going from 6 months to 3 months. It really just, what does the data support? If you can achieve SVR with 3 months treatment duration, we believe the regulatory authorities, both in the U.S. and Europe, would accept that as being sufficient demonstration of efficacy.

  • - Analyst

  • Very good, thanks, helpful. Can you also go over some of the recent trends in the quarter-over-quarter changes in Lexiva royalties, from like Q2 to Q3, and where you see it going?

  • - EVP, CFO

  • Sure. The trend is upwards, which we're pleased about, and as we look at the royalties, it's just a component of our total revenue guidance. We're not changing the individual components of that revenue guidance. The guidance for the full year was, just referring to my notes here, 25 to $29 million.

  • Clearly the royalty is performing very strongly compared to that forecast. But we're not about change that forecast of the components of the revenues. We are reiterating our revenue guidance which is 150 to $160 million. The product has performed very well this year, at the end of Q3 market share is approximately 11.5%, and I mentioned in my prepared remarks that we've done close to $150 million of sales year-to-date compared to last year, somewhere closer to $70 million. The product is performing very well, and providing a nice financial return.

  • - Analyst

  • Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thanks, George.

  • Operator

  • Your next question comes from [Avanish Vilanky].

  • - Analyst

  • Couple questions regarding your prior Phase Ib VX-950 monotherapy study, then one regarding your upcoming Phase Ib study. In your past study can you comment on the concentration of drug achieved in the liver, in terms of the IC-90 concentration identified in the Replicon assay?

  • Separately, in the upcoming study will you be excluding any ethnic groups from the upcoming phase Ib? Thanks.

  • - SVP, Drug Evaluation & Approval

  • What I can tell you is blood levels, where we did exceed in the optimal dose groups, we were approximately 2 to 3-fold above the IT-90 in the drug. We don't though what the liver concentrations were. We do know, in animals, that we are somewhere in the liver levels are somewhere in the range of 10- to 20-fold above the blood levels.

  • I don't know what it is in humans, but in a certain respect, it doesn't really matter in terms of how we go forward, because what we got out of the clinical study was a very clear relationship between trough blood concentration, and antiviral response. And we essentially know what concentrations to target, in order to achieve greater than a 4 log reduction in viral load, with two weeks of treatment, and that's what we're going to target going forward.

  • And then your second question was in terms of this is really, I think, directed toward the Phase II program, would we exclude ethnic groups. We have no current plans to exclude any specific ethnic group.

  • Operator

  • Thank you. Your next question comes from Steve Harr.

  • - Analyst

  • Hi, this is [Ashi Fiagi] in for Steve. Couple questions. To get timelines straight, can you give us some guidance on a when a three-month study might begin, and perhaps sketch out a development plan?

  • And for VX-702 are there any stopping rules for safety?

  • - SVP, Drug Evaluation & Approval

  • In terms of the three-month study, in our three-month toxicology studies, are ongoing in both rat and dog. We'll have the data early in 2006.

  • At that point, we would need to file the data to what should be then an open IND, and then we'd be ready to start three-month clinical studies, and in particular a three-month study in combination with interferon. So it's in that timeframe. Early in 2006, we'd anticipate starting a 3-month Phase II program.

  • Our overall goal for 2006 remains, that with the the 1 and 3-month studies that we would have demonstration of reaching SVR by the end of 2006. In the Phase II context as defined that they are at three months follow up that they are PCR negative.

  • In terms of 702, the study is set up with -- there are no stopping rules as such, but there is an independent Data Safety Monitoring Committee, that is monitoring the study on an ongoing basis. There are planned scheduled meetings where there's data reviewed, and the study is ongoing.

  • - Analyst

  • If I can just ask a quick follow-up I think you said for the three-month study combination. Do you continue to plan a monotherapy arm in the three-month study?

  • - SVP, Drug Evaluation & Approval

  • Yes, we are still looking at monotherapy. There are in terms of paths going forward given, I would say, a certain set of biases both from a regulatory perspective, and from a clinical investigative context, combination therapy is really the most direct path forward, and in terms of establishing what we would say, would be a transforming product profile of significant increases in SVR, and being able to get to a treatment duration of three months or shorter, combination therapy with interferon, is the one that's like toll give you the highest success rate, highest likelihood of success.

  • Operator

  • Thank you. Your next question comes from Andrew McDonald.

  • - Analyst

  • One final follow-up question about the future of HCV treatment as you see it. I'm in agreement that for the foreseeable future, you're going to have interferon in the mix, but a lot of people are interested in doing away with interferon, and getting to an all-oral therapy, a combination of direct anti-virals. I'd like to get your thoughts on how you see the treatment paradigm evolving to an all-oral therapy?

  • - SVP, Drug Evaluation & Approval

  • So this is John again. We are certainly in the long run, we would certainly look at a combination of all-oral agents, and direct-acting antivirals. We do believe, as Joshua said, that going forward the cornerstone of therapy, based on everything that we have right now, is going to be protease inhibitors, in particular VX-950, because of the level of viral load reduction, and the rapidity of viral load reductions that we have seen in the Phase Ib study.

  • As we go forward, we will look at other oral agents ,as they come through development. At this point there's nothing up there that's actually clearly more potent as an antiviral agent, than interferon by itself.

  • And so we would look for agents that are clearly more potent, in terms of viral load reduction, and I think an important consideration also, in terms of where we are in development, being in an investigational stage, is the side effect profile of the agent we might want to combine with. I think we would want to combine with an agent that's really as clean as VX-950. If there are any tolerability questions, it just runs the risk of putting a cloud over VX-950 itself.

  • So as those agents come along we're certainly going to look at that, and we do recognize that in the long run that is the clinical objective. But if we can achieve high SVR with only three months of interferon therapy added on to VX-950, that's going to be a huge step forward as well. As we talk to doctors, in genotype 2-3 patients, they're beginning to treat a lot of those patients as they walk in the door, there's no real question, because you get 80, 90% SVR rates there, with three months of treatment with interferon. If we can start approaching that in genotype 1, I think a lot of the burden of interferon will, in a sense, have been lifted.

  • - Analyst

  • Just to follow up, it does seem that the most critical feature for suppressing viral rebound is adequate coverage at the trough concentrations. And because your drug looks as though it will probably be dosed 3 times a day, it does seem unlikely that you're going to find another oral agent to use in combination, where you can be comfortable that patients are not going to have viral rebound, because they're a little late on taking a dose. Is that something that you believe as well?

  • - Chairman, CEO

  • First of all, this is Joshua Boger. First of all, I think you're premature, in assuming that we're necessarily 3 times a day. I think what we're doing in our development pathway, which is making the antiviral potency and suppression of virus the primary thing that we are optimizing for at this point in development, we have a compound and a formulation now in pills, that is very favorable, but we're not going to be exploring at this point, two variables at once. The intrinsic antiviral potency, and to be modifying the dosing frequency, because 3 times a day is perfectly doable.

  • Do not assume that that means we're going to be 3 times a day forever, or that we're going to be 3 times a day, even through all of 2006. So, I think that's a premature assumption.

  • The issue of other drugs, I think what John said is, that it wouldn't be looking for a drug to add to VX-950 that would be as antiviral potent as VX-950, but something at least as potent in anti-viral terms, as interferon, and right now we don't see that out there in clinical data, but we are monitoring that very closely. I think if we show the kind of sustained viral responses, that we haven't shown to-date, and we need to show in additional clinical trials, but if we do that by adding interferon then that becomes the bar, the efficacy bar, over which any other combination has to go, including another oral drug in combination with 950, and that's our approach.

  • - Analyst

  • Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Thank you Andrew. We have time for one or two more questions.

  • Operator

  • Yes, ma'am. One moment. Your next question comes from Jason Zhang.

  • - Analyst

  • We all know early viral load reduction is a very good indicator for Sustained Viral Response, if you give the drug long enough treatment. The question is, how do you find out what is necessary duration of treatment, and could you look back at how the duration of treatment for PEG interferon combination, how is the duration established? Is there any theory behind, or is it totally imperical?

  • - SVP, Drug Evaluation & Approval

  • So, sitting here now, 15 years after interferon went in the clinic, we actually have a huge advantage, because there is the data said that's available, which is actually, I think, if you look across, standard interferon, interferon plus ribavirin, pegylated interferon by itself, pegylated interferon with ribavirin, genotype 2-3, genotype 1, there's actually a pretty good rule that's emerging, that if you take the amount of time it takes to get to RNA viral load undetectable in the blood, and you multiply that by 3 to 4, so that gives you the total duration of treatment required to eradicate the virus in the liver.

  • So that in the case of genotype 1 with pegylated interferon and ribavirin, it takes about 12 weeks to get to RNA-undetectible. That's why it takes 48 weeks. In genotype 2-3, it takes about 8 weeks. 6 to 8 weeks and it takes 6 months of treatment. The genotype 2-3 patients, who become RNA-undetectable by the end of the first month, only need three months of treatment to achieve SVR. And it's really that type of parameter that we're going to be using to guide what the full duration of required treatment would be.

  • It turns out that actually fits very well also, with the viral kinetic modeling where you take the slopes of viral load decline, and just project it down past where it becomes undetectable, down to the point, there's very few viral particles left in the body overall, which is really getting to 10 to the -5, 10 to the -6 viral particles per milliliter of blood, if you can achieve that, that actually correlates very well with the required duration of treatment for SVR. So we're going to use both.

  • And the data with monotherapy, which you'll see at AASLD, from the Phase Ib study, as we do those projections, I'd project three months of treatment would be required. And then, again, the data from the upcoming Phase Ib combination study will help guide what the duration of combination therapy would be.

  • - Analyst

  • Okay. If I again, explore a little bit in genotype 1, a 12-week treatment would drive the viral load to undetectable, and then you times the 3 is the appropriate duration, you need, but are you talking about individual patient, or are you talking about a group of patient, or percentage of patients?

  • - SVP, Drug Evaluation & Approval

  • A group of patients is what's generally done. With interferon and ribavirin, it's sometimes a little hard to do, because there is a heterogen 80 in the response. What we would like to see with PEG interferon and ribavirin and VS-950, is a pretty consistent response, even as monotherapy, we did every patient in the first 3 days, have at least a 2 log reduction in viral load, and 26 out of 28 parents have at least a 3 log reduction in viral load. So it may turn out to be at the same point, or at the same measurement, whether it's as a group or an individual patient basis, with VX-950 based therapy, it actually won't matter, it's the same result.

  • - Analyst

  • Also, if I go further, in your U.S. Study, you do have 4 out of 8 parents in the 750 group that achieved viral undetectable. I don't know what day they became that, but if your series is right for those particular patients, if you just extend whatever treatment to achieve that level, you know, 3 times, they should become SVR. Is that too much to ask. or is there still something you want to find out in future studies?

  • - SVP, Drug Evaluation & Approval

  • I think that's a statement. Of those patients you would expect that about 8 weeks of treatment would be sufficient. And if you do the more detailed, the slope analysis, you get to 8 to 12 weeks for those patients. So the two actually do line up.

  • - Chairman, CEO

  • Just as important to interject, that's an extrapolation from the data we have, and that we need to do the experiments to confirm that.

  • - Analyst

  • Okay. Thanks.

  • - VP, Corporate Comm, Financial Planning

  • Thank you. Do we have one more question left on the line?

  • Operator

  • Yes, ma'am, your final question comes from Han Li.

  • - Analyst

  • Quick housekeeping question. Have you published or presented data for VX-702 from prior studies?

  • - SVP, Drug Evaluation & Approval

  • We have presented the Phase 1 single- and multi-dose data, which has the ex-vivo, the demonstration that we can suppress TNF IL-1 and IL-6 production from white cells taken from healthy volunteers who have received VX-702, and we presented the data from the ACS trial, where we demonstrated with only 5 days of treatment a significant and substantial reduction in C-reactive protein levels. The actual articles themselves are in the works.

  • - Analyst

  • Okay. Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Great. Shayla, do we have one last question from Mark Augustine?

  • Operator

  • Yes, we do.

  • - VP, Corporate Comm, Financial Planning

  • Hi, Mark.

  • - Analyst

  • Thanks. Josh had made some comments, I thought they were attributable to Josh in July, about having made I think at the time 80,000 VX-950 tablets. Given that he commented today a lot about scale-up being a primary execution risk, response to the question about risks, I just wanted to see if we can get an update on where you were in production there, and if your plans remain on-track for the one-ton scale that were described for 2006, et cetera? Thanks.

  • - Chairman, CEO

  • Yes, thanks, Mark. Yes, even since the comments I made in the summer, we have made additional improvements in the formulation, and the formulation that we now have ready for Phase II are the tablets that you've heard described. We've made many of those.

  • We're not going to give a tablet count any more. That gets us in a continual update mode, but we are completely on-track to be at the ton or larger scale in manufacturing next year. That's a tremendous challenge for us. It's a lot of effort of being put on it internally, but we are fully on-track for that.

  • - Analyst

  • Would will help you determine, Josh, if this is the final formulation or not?

  • - Chairman, CEO

  • I can tell that you this formulation is not the final formulation, as would 999 out of 1000 times in drug development be true at this stage, it is a very, very, very good and advanced Phase II formulation, but there are all kinds of refinements that you introduce at the Phase 3 level, that relate to all kinds of sexy properties like, how well does it pour in the manufacturing process, and things that you normally don't hear on conference calls, and those are all ordinary course of business refinements that will happen over the next several months, and then we anticipate that we would then have locked down the formulation and manufacturing scale, by the end of the 2006. That's the normal way you develop drugs, and we're actually ahead of schedule on that.

  • - Analyst

  • Very well. Thank you.

  • - VP, Corporate Comm, Financial Planning

  • Shayla, thank you. We'd like to thank everyone for joining us on the Vertex Pharmaceutical's conference call this evening. The IR team will be in the office to answer any additional follow-up questions tonight and tomorrow. Thank you.

  • Operator

  • Thank you. This concludes today's conference call. You may now disconnect.